I think its important to understand the objectives for choosing a standard costing system. I feel this is required
a) Implement the budgets and forecasts
b) Get an estimate of cost of finished goods using cost rollup
c) Facilitate pricing of finished goods by stripping off certain cost elements
d) And of course to assess performance of underlying business functions driving costs.
Lot of modern thinking has been questioning the relevance of a standard costing system in today's dynamic business environment. Standard costing system is often doubted whether it directs correct organizational behaviour. Is there a too much focus on conformance to standard cost vs focussing on adding value..
Well I think fundamentally we need to question why organizations prepare budget. Business needs a benchmark to validate its strategy and business decisions. And budget is one tool which translates the strategy and business decisions of a business. Standard costing goes one level below into operational execution of the strategy and business decisions. It executes the budget and tracks the reality.
So can we do away with the budgeting and planning process? How many organizations do not want to have budgets? Yes there are instances where companies have budget but do not follow standard costing. But yet there is a rough benchmark against which things are compared.
I would love to have more perspectives on this topic and why modern thinking is against standard costing.